Car Wars!

I am very impressed by the bold decision taken by President Trump to impose a 25% tariff on ALL cars imported into the USA. This has some far reaching consequences that I want to explore with you in this Substack.

First, the simple background. The policy, invoking national security under the Trade Expansion Act, targets vehicles and key components like engines and transmissions, while intended to encourage domestic production. 60% of cars in the USA are imported so it’s an audacious move that we should applaud.

Let’s look at where all those cars come from because THAT is where the pain will be felt. Car manufacturers in all these countries face several existential dilemmas. Do they continue to try and sell their cars with this massive tariff OR do they relocate manufacturing to the US and avoid all such tariffs? There is a PARTICULAR UK/European issue that I want to get to but first, let’s review the top of the car export pops!

• Mexico sells $50 billion worth of cars into the USA which is 22.8% of total U.S. car imports. Mexico leads as the largest supplier, driven by its proximity and integrated supply chains with U.S. automakers like Ford and GM. Mexico now faces a massive dilemma.

• Japan is second to Mexico with $40.8 billion car exports to the USA (18.6% of total US car imports. Japan, home to Toyota and Honda, exports reliable, high-demand vehicles like the RAV4 and Camry to the U.S. market.

• South Korea is not far behind in third place with $38 billion car exports (17.3%)
  South Korea’s rise is fueled by Hyundai and Kia.

• Canada comes in 4th place with $28.4 billion car exports. (12.9%) Canada benefits from close trade ties under the USMCA, exporting vehicles like the Toyota RAV4 assembled there.

• Germany is also a major player as you might expect with $25.6 billion export sales(11.7%) Germany supplies the luxury brands like BMW, Mercedes-Benz, and Volkswagen, appealing to premium U.S. buyers.

• United Kingdom comes in with $9.8 billion (4.5%) The UK exports niche luxury vehicles from Jaguar, Land Rover, and Mini, even Rolls Royce. The car volumes may be small but the value is high!

• Slovakia is also a player with $6.3 billion car exports (2.9%) Slovakia’s contribution comes from manufacturing for brands like Volkswagen and Kia.

• Italy is a niche player with $4 billion exports. (1.8%) Italy sends high-end cars like Ferrari and Lamborghini, targeting enthusiasts and collectors.

What Trump is doing here is very clever. He is challenging all these global car manufacturers to either set up shop in the USA - which will bring MANY jobs - OR lobby their respective national governments to remove tariffs on US car imports. (The UK prohibits Tesla Cybertruck for example!) No one can ignore this tariff announcement.

However there is one other incredible consequence. EU and UK Governments are FORCING Car manufacturers to produce all electric vehicles, the UK has mandated this by 2030. The USA is not going down this path and so US demand for I.C.E. (Internal Combustion Engine) vehicles will remain high. So what do those Car Manufactures based in Europe do? The US market will either massively shrink to them OR they adapt and set up manufacturing for Petrol/Diesel cars in the USA. But how can they if the EU/UK has ordered them to go all electric? How will this work? I don’t see how they can have two parallel supply chains and make money.

Not ONLY has President Trump shaken up WHERE cars are going to manufactured but he is ALSO changing the KIND of cars that are made. The EV scam may just have been blown apart and each major Car Manufacturer now has some existential choices to make!

The EU imposes a 10% tariff on all US car imports so I don’t see how they can complain when Trump gives it back to them with bells on! Just to put things in context, in 2023, the United States exported approximately $7.8 billion worth of passenger vehicles to the European Union, according to trade data. By comparison, the EU exported $37 billion worth of new cars to the U.S. in the same year, highlighting a significant trade imbalance in the automotive sector.

Trump is applying the brakes to all of this unfairness and I welcome what he is doing!

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